BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: SB 217
AUTHOR: Yee
INTRODUCED: February 23, 2009
FISCAL COMM: Yes HEARING DATE: April 15, 2009
URGENCY: No CONSULTANT:Nancy Anton
SUBJECT : Higher Education: Executive Compensation
SUMMARY
This bill prohibits the Board of Governors of the
California Community Colleges (BOG CCC) and the Trustees of
the California State University (CSU) from increasing the
compensation for any executive officer in any year in which
students fees are increased. The bill also requests the
Regents of the University of California (UC) to follow this
prohibition.
BACKGROUND
Under current law, fees for community college students are
set in statute. Fees for students at UC and CSU are set by
their respective governing boards; however, these fee
levels reflect the action taken by the Legislature and
Governor in the annual budget act.
ANALYSIS
This bill prohibits the BOG CCC and the CSU Trustees from
increasing the compensation for any executive officer in
any year in which mandatory student fees are increased; the
bill also requests the UC Regents to comply with this
prohibition. The bill defines "executive officer" as
including but not limited to:
1) For CCCs: The Chancellor of the California Community
Colleges, an executive vice chancellor, a senior vice
chancellor, the general counsel of the colleges and
individual campus president.
2) For CSU: The CSU Chancellor, a vice chancellor or an
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executive vice chancellor of the university, the
general counsel of the university, the trustees'
secretary or a campus president.
3) For UC: The UC president, a vice president, the
treasurer or assistant treasurer, the general counsel,
the regents' secretary and the chancellor of an
individual campus.
These restrictions would apply only to executive officers
entering into a new or renewing an existing employment
contract on or after January 1, 2010.
STAFF COMMENTS
1) What is the problem that the bill is trying to solve ?
It is not clear if the bill is an effort to prevent
student fees from increasing or to prevent certain
executives from receiving compensation increases. In
either event, there appears to be much more sound and
effective ways of addressing these concerns rather
than by linking the two to each other. For example,
statute could be enacted that explicitly provides what
the compensation for certain positions should be, what
levels of increases could be provided in the future,
or ranges for either or both. Since the Legislature
already either explicitly or implicitly sets the
student fee levels (see #2 below), it does not appear
to make sense to tie executive compensation to student
fees.
2) Who sets student fees ?
a) California Community Colleges. The
"mandatory enrollment fee" at the CCCs is set in
statute by the Legislature (EC 76300(b)(1).
Neither the local CCC governing districts nor the
state-level CCC Chancellor's Office has authority
to set this fee. Statute simply requires local
CCC districts to collect the fee as prescribed in
statute. Given that these entities do not have
the authority to raise or lower CCC student fees,
does it make sense to peg increases in their
executive's compensation to an index that they do
not control?
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b) California State University (CSU) and
University of California (UC). Unlike the CCCs,
both the UC Regents and CSU Board of Trustees set
the mandatory enrollment student fee levels.
However, this appears to be more administrative
rather than an executive function. Specifically,
the level of student fees at both UC and CSU is
set through a process in which both the Governor
and Legislature play a significant role. The
process begins with the Governor including in his
proposed annual budget exactly what the mandatory
student fee level should be. This is followed by
a series of legislative budget hearings in which
the Legislature, essentially, affirms or revises
the fee level proposed by the Governor. Lastly,
it is the respective governing boards of UC and
CSU which adopt the fee level. A review of the
last 10 years indicates that in no instance has
either UC or CSU adopted a fee level that
differed from the one assumed by the Legislature
and Governor as part of the annual budget act.
Does it make sense to tie executive compensation
to an index (student fees) that is, in essence,
set by the Legislature and Governor? Further,
although the UC Regents have authority to
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act wholly independently, CSU is a state entity,
therefore, the Legislature is fully able to set
or control the actual levels of student fees
and/or employee compensation should the CSU
Trustees ever set a level with which the
Legislature disagrees.
3) More appropriate as Budget Act language ? Because
student fees and virtually all employee compensation
changes on an annual basis, if it is the Legislature's
desire to better control executive compensation, it
appears to make more sense to do so through the annual
Budget Act rather than as a permanent change in
statute.
4) What is "Compensation" ? The bill prohibits increases
in "compensation" under specified circumstances but
does not define "compensation." Is this limited to
salary? Does it include other forms of compensation
such as health benefits, retirement benefits, travel
allowances, housing allowances, additional workload
(e.g. teaching; grant-funded research; fees for seeing
patients). Staff notes that not all executives
receive the same combination of "compensation
packages." Staff recommends that the bill be amended
to define "compensation."
5) Unintended consequences ? By linking executive
compensation to student fee increases, the bill could
result in a number of unintended consequences
including:
a) Non-aligned compensation. Because the bill
limits only increases in executive compensation,
the bill could have the effect of having lower
executive administrators and/or faculty
compensation (which is collectively bargained at
most CCCs and the CSU) begin to approach and
ultimately even exceed these executive's
compensation. Does this make sense?
b) Reducing levels of student financial aid.
At both UC and CSU, approximately one-third of
student generated fee revenue is used to provide
institutional financial aid to financially needy
students. In essence, fee increases reduce the
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amount of state subsidy for those who can afford
to pay while allowing the institutions to give
more financial aid assistance to those who might
not be able to attend without it. Given this,
does it make sense to provide a deterrent to
raising student fees?
c) Increased pressure for General Fund Support.
UC, CSU and to a lesser extent the CCCs are all
funded by a variety of sources the two most
significant being General Fund state support and
student fees (and local property tax revenues for
CCCs). To the extent this bill creates a
disincentive to raising student fees, by
necessity it would create pressure for the other
pieces of the pie to have to grow to compensate.
If the fees remain static, what will be the
effect on the General Fund?
d) Infrequent but larger fee increases?
Although the state currently has no student fee
policy, prior policy was predicated on the
philosophy that student fee increases be gradual
and predictable. This bill, however, could have
the opposite effect. For example, under this
bill student fees could remain the same for
several years -- thereby allowing annual
compensation increases in each of those years --
and then be raised a substantial amount - 25% or
30% in a single year. Does this make sense?
e) Other compensation increases. Compensation
typically includes a variety of items including
health benefits. Would executive personnel be
required to pay out-of-pocket for any rate
increases because to do otherwise would be
considered "an increase in compensation"? Would
administering a separate health benefits program
cost more than simply paying the premium
increase? Likewise, what about cost-of-living
adjustments? How about UC hospital executives
who see patients? Would their patient fees have
to be lower than those of other doctors who
aren't executives? Would they have to forgo the
full amount of an insurance carrier's
reimbursement if it constituted a higher level of
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reimbursement than previously provided? Does this
make sense?
f) Brain drain? If executive salaries are
unable to keep pace with those of comparable
institutions, is it reasonable to expect that
California will be able to attract and/or retain
the caliber of professionals desired to fill
these positions?
6) How is Executive Compensation set now ? Although it is
currently the purview of the institutions to set the
compensation levels for executive personnel, such
levels typically reflect compensation levels paid at
comparable institutions nationwide.
7) What are current mandatory student fee levels now ? In
2008-09, CCC students pay $20 per unit, CSU students
pay $3,048 in mandatory systemwide fees and UC
students pay $7,126 (Staff notes that, in addition to
these fees, students also pay campus-based fees.) How
does this compare nationally?
a) CCCs. A March 2009 report from the
California Postsecondary Education Commission
(CPEC) indicates that CCC fees are the lowest in
the nation, equivalent to $600 per year for a
full-time student (in addition, these fees are
waived for students who are unable to afford
them). This is well-below the national average
of $2,700.
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b) CSU. CPEC indicates that CSU student fees
are lower than those at any of their comparable
institutions and are about half of the average of
the 15 public universities that CSU compares
itself to for faculty salary purposes.
c) UC. CPEC indicates that UC student fees are
lower than the fees at three of the four public
universities that it compares itself to for
faculty salaries and lower than the average for
these institutions.
In addition, he Legislative Analyst's Office (LAO) has
generally recommended the student's pay about 30% of
their cost of attendance. The LAO indicates that CCC,
CSU and UC student fees cover approximately 11%, 31%
and 33%, respectively, of the cost of education at the
respective institution. This is still less than the
national averages which are 31%, 48% and 51%,
respectively
8) LAO recommendations . A recent LAO report on higher
education (HED-25; January 29, 2009) found, in part,
relative to student fees that :
a) "Fee revenue works interchangeably with
General Fund support to fund the core
instructional mission of the public segments. A
lower share of cost for students, as we have in
California, necessitates higher costs for the
state. The state's portion (in the form of a
general subsidy to the institutions) is paid for
all students, not only lower-income students. A
fee increase has the effect of increasing
non-needy students' share of their college costs,
thus reducing the state's share. This can free up
state resources that could be used to support
higher education programs, including helping
financially needy students, or to help balance
the state budget."
b) "Maintaining very low fees is an inefficient
strategy for preserving affordability. While
needy (Community College) students are already
shielded from fees through the BOG waiver
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program, low fees deliver high state subsidies to
middle-income and wealthy students-most of whom
would receive substantial, if not full, fee
refunds from the federal government" (federal
Hope and Lifetime Learning credits and the
tuition and fee deduction).
9) Recent legislative hearings . In 2006 and 2007, the
Senate Education Committee held several hearings on
the subject of UC and CSU executive compensation.
These hearings largely focused on the issues of
transparency, accountability and adherence to stated
policies. A variety of reviews and studies were
conducted and a number of changes made.
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SUPPORT
American Federation of State, County and Municipal
Employees (sponsor)
California Nurses Association
California State Employees Association
OPPOSITION
California Community Colleges Chancellor's Office
California State University
University of California